Search Results For "whole foods"

From Sen. Elizabeth Warren (D-Mass.) to Sen. Josh Hawley (R-Mo.), populist calls to “fix” our antitrust laws and the underlying Consumer Welfare Standard have found a foothold on Capitol Hill. At the same time, there are calls to “fix” the Supreme Court by packing it with new justices. The court’s unanimous decision in NCAA v. Alston demonstrates that neither needs repair. To the contrary, clearly anti-competitive conduct—like the NCAA’s compensation rules—is proscribed under the Consumer Welfare Standard, and every justice from Samuel Alito to Sonia Sotomayor can agree on that.

In 1984, the court in NCAA v. Board of Regents suggested that “courts should take care when assessing the NCAA’s restraints on student-athlete compensation.” After all, joint ventures like sports leagues are entitled to rule-of-reason treatment. But while times change, the Consumer Welfare Standard is sufficiently flexible to meet those changes.

Where a competitive restraint exists primarily to ensure that “enormous sums of money flow to seemingly everyone except the student athletes,” the court rightly calls it out for what it is. As Associate Justice Brett Kavanaugh wrote in his concurrence:

Nowhere else in America can businesses get away with agreeing not to pay their workers a fair market rate on the theory that their product is defined by not paying their workers a fair market rate.  And under ordinary principles of antitrust law, it is not evident why college sports should be any different.  The NCAA is not above the law.

Disturbing these “ordinary principles”—whether through legislation, administrative rulemaking, or the common law—is simply unnecessary. For example, the Open Markets Institute filed an amicus brief arguing that the rule of reason should be “bounded” and willfully blind to the pro-competitive benefits some joint ventures can create (an argument that has been used, unsuccessfully, to attack ridesharing services like Uber and Lyft). Sen. Amy Klobuchar (D-Minn.) has proposed shifting the burden of proof so that merging parties are guilty until proven innocent. Sen. Warren would go further, deeming Amazon’s acquisition of Whole Foods anti-competitive simply because the company is “big,” and ignoring the merger’s myriad pro-competitive benefits. Sen. Hawley has gone further still: calling on Amazon to be investigated criminally for the crime of being innovative and successful.

Several of the current proposals, including those from Sens. Klobuchar and Hawley (and those recently introduced in the House that essentially single out firms for disfavored treatment), would replace the Consumer Welfare Standard that has underpinned antitrust law for decades with a policy that effectively punishes firms for being politically unpopular.

These examples demonstrate we should be wary when those in power assert that things are so irreparably broken that they need a complete overhaul. The “solutions” peddled usually increase politicians’ power by enabling them to pick winners and losers through top-down approaches that stifle the bottom-up innovations that make consumers’ lives better.

Are antitrust law and the Supreme Court perfect? Hardly. But in a 9-0 decision, the court proved this week that there’s nothing broken about either.

One year ago tomorrow the Amazon/Whole Foods merger closed, following its approval by the FTC. The merger was something of a flashpoint in the growing populist antitrust movement, raising some interesting questions — and a host of objections from a number of scholarsadvocatesjournalistsantitrust experts, and others who voiced a range of possible problematic outcomes.

Under settled antitrust law — evolved over the last century-plus — the merger between Amazon and Whole Foods was largely uncontroversial. But the size and scope of Amazon’s operation and ambition has given some pause. And despite the apparent inapplicability of antitrust law to the array of populist concerns about large tech companies, advocates nonetheless contend that antitrust should be altered to deal with new threats posed by companies like Amazon.

For something of a primer on the antitrust debate surrounding Amazon, listen to ICLE’s Geoffrey Manne and Open Markets’ Lina Khan on Season 2 Episode 1 of Briefly, a podcast produced by the University of Chicago Law Review.  

On August 28, Truth on the Market and the International Center for Law & Economics hosted a blog symposium discussing the impact of the merger.

One year on, we asked antitrust scholars and other experts to consider:

  • What has been the significance of the Amazon/Whole Foods merger?
  • How has the merger affected various markets and the participants within them (e.g., grocery stores, food delivery services, online retailers, workers, grocery suppliers, etc.)?
  • What, if anything, does the merger and its aftermath tell us about current antitrust doctrine and our understanding of platform markets?
  • Has a year of experience borne out any of the objections to the merger?
  • Have the market changes since the merger undermined or reinforced the populist antitrust arguments regarding this or other conduct?

We lined up an outstanding and diverse group of scholars to discuss these issues.


Symposium Posts (in order of posting)

Christopher L. Sagers is a Distinguished Professor of Law at the Cleveland-Marshall College of Law

It is a useful thing sometimes to be a token liberal at a conservative academic conference.[1] More than once I’ve found myself on a panel at which I wanted to talk about issues that I thought were at the heart of the event-sponsors’ views, but they then wanted to talk about different things entirely, things I wouldn’t expect to be on anyone’s agenda. Maybe that sort of thing reflects our siloed popular debate generally. When we actually talk to each other once in a while, we’re often surprised that we’ve been off in our corners talking about completely different things. Anyway, today again I’m interested in why this website’s editors chose this particular merger as a topic, much more so than I am in the merger itself.

I obviously don’t know anybody’s real motives, but it seems to me the point isn’t to talk about the merger itself. Asking whether it caused harm is essentially a rhetorical question, an exercise in attacking people who said that it would. So what I want to know is, who really said it would? What serious participant in antitrust debate—not a journalist or a professional opinionator—made any meaningful effort to oppose this deal or get the government to challenge it? If it was anybody, as the blurb announcing the symposium implies, it was only the new “progressive” antitrust movement, that group of mostly very young journalists, activists, and think-tank personnel loosely organized around the Open Markets Institute.[2] So the real question I want to talk about is not whether this merger was bad. I definitely think it might have been, and might prove to be still, but for reasons I will explain I hardly even care. Instead, I want to ask why antitrust conservatives seem so interested in this little group, and whether they really deserve this much attention. As a matter of intellectual substance, I think they do not.

In the deal, an online logistics and e-commerce firm proposed to buy a brick-and-mortar grocer, though it had no serious prior business in grocery. There might be dynamic concerns or some minor market-definition issues, but in its present effects most anyone would describe the deal as “conglomerate.” And that is to say that most anyone would acknowledge the deep unlikelihood of challenge to the deal, under any plausible administration of either party, or success before the current judiciary.

Mainly for that reason, I was never especially interested in it. It was “big” in some sense, and it inevitably generated a bunch of popular discussion for a few weeks. I got a bunch of calls from the press, which usually happens when the shiny object du jour is some big antitrust thing, so I talked to them. Otherwise, I thought it was kind of a side-show.

On the one hand, I think Amazon itself poses serious competitive risks that we are fools to ignore. I’ve said that, and we’ll all likely be saying more about it as the next few years unfold. And in principle, I think there could have been intellectually plausible theories of harm against this particular merger. I think one of those theories in particular should be taken more seriously, especially in Silicon Valley deals, and I said that too. More on that in a sec. I could even imagine a world in which deals like this are routinely blocked, because I believe in a strong, prophylactic merger policy. I believe it should be and explicitly was Congress’s policy to encourage internal growth over growth by acquisition. The former is literally “competition,” whereas the latter is just getting control over things that consumers already have. But I never expected a challenge in this case.

I think the real challenge to Amazon, if there ever is one, will ripen as a monopsony case or something like it, in which the very interesting issue will be market definition. If some §2 case is ever to occur, it would have to involve some humdinger of a creative, ground-breaking, Microsoft-style market definition, as well as a careful analysis of an exclusionary history. Maybe too there will be some sort of challenge to Amazon’s vertical practices, as to which it’s apparently had pretty sharp elbows, or to its dealings in the “Amazon Marketplace,” or to its apparent designs on private-label products. But such a case probably won’t much involve this particular merger. So, I told anyone who asked that, whatever the concerns might be, government action was very unlikely. And even were I Queen for a Day, I definitely would not have picked this hill to die on. While I long for a return of Thurman-Arnold-style antitrust leadership, who will work to expand the law in directions I like, challenging this merger now would have been a big, embarrassing waste of government resources that would have given the policy a black eye. And indeed no action was taken, and FTC gave very early termination of the HSR review.

So why this deal, in this symposium, and why now? The best substantive reason I could think of is admittedly one that I personally find important. As I said, I think we should take it much more seriously as a general matter, especially in highly dynamic contexts like Silicon Valley. There has been a history of arguably pre-emptive, market-occupying vertical and conglomerate acquisitions, by big firms of smaller ones that are technologically or otherwise disruptive. The idea is that the big firms sit back and wait as some new market develops in some adjacent sector. When the new market ripens to the point of real promise, the big firm buys a significant incumbent player. The aim is not just to facilitate its own benevolent, wholesome entry, but to set up hopefully prohibitive hurdles for other de novo entrants.[3] Love it or hate it, that theory plausibly characterizes lots and lots of acquisitions in recent decades that secured easy antitrust approval, precisely because they weren’t obviously, presently horizontal. Many people think that is true of some of Amazon’s many acquisitions, like its notoriously aggressive, near-hostile takeover of

As for whether this theory could explain the Whole Foods deal, probably every participant in this symposium except me would scoff. But let us observe that if this was a genuine conglomeration of otherwise unrelated businesses, which I take to be the main defense of it, then one must wonder how Amazon could have thought it was strategically desirable. While the company makes mistakes and some of its initiatives fail, it is run by an almost uniquely astute and aggressive leadership. According to Brad Stone’s famous book, Jeff Bezos learned hard lessons about incautious acquisitions during the dot-bomb bust of 2001, and has been much more carefully strategic ever since. But true conglomeration historically has proven to be a pretty bad idea. The major wave of it that consumed Wall Street and corporate America during the 1960s turned out to be among the biggest wastes of time and shareholder wealth in American history. So I imagine that this uniquely competent firm did not mindlessly repeat those mistakes, and rather has in mind some strategic advantage. I would imagine it will be in some market that as yet is small or nascent, and it is probably online grocery. That’s a little market now, it’s potentially a big one, and if Amazon quickly owns it, you’re simply high on drugs if you think it won’t seriously discourage challengers.

A different reason to talk about the merger might just be to revisit traditional theoretical perspectives on non-horizontal integration, which are pretty much conservative bread-and-butter. I doubt that’s really the point, though, since no one that I’m aware of stated any formal theoretical opposition to this particular merger. I could be wrong, but I just don’t think it played any real role.

So that leaves what I think is probably the real motivation. This is hardly the only place at which antitrust conservatives have seemed oddly preoccupied with the new progressives, seeming to care about them more than really anybody else in antitrust. Right after the election, Josh Wright took part in a Hannity-and-Colmes-type piece in the New York Times with Open Markets lieutenant and part-time Twitter thug Matt Stoller. Josh Wright also seems mainly responsible for popularizing the “#hipsterantitrust” nomenclature, and has engaged them a lot in other ways. He’s hardly alone. Again, I’ve personally sat on a panel at a conservative conference at which it’s all anybody wanted to talk about. And this symposium seems to be about this group, because Amazon is their most particular bête noire. It’s the firm that best captures their confidence that present antitrust is unfit for its task, and indeed many of them harshly criticized the Whole Foods merger.[4]

But why should they be so interesting? Is it because they have meaningfully new ideas?

No. They surely have ideas, and their ideas have had influence, but they are anything but new. They have had influence of a different kind, but only through their capacity for public relations and their abettors in the press, who have perhaps been a little too eager to buy whatever the new progressives have to sell. Admittedly, they have been influential in practical respects in getting antitrust back on the agenda, and they’ve done it in a way that no mere academic was ever likely to have done. But even those successes don’t seem very likely to translate into lasting policy correction. For example, their greatest real-world success so far was having a hand, at least in the messaging, of the congressional Democrats’ “Better Deal” platform. But that thing has already been utterly forgotten. It had a manifestation in a set of bills introduced by Senator Klobuchar, but those bills will themselves never be law. And in fact, those bills are much more in the nature of traditional antitrust doctrine than anything the progressives might favor; one imagines Senator Klobuchar is to them just the sort of collaborationist neoliberal Democrat they particularly despise. Anyway, I don’t mean any of that in itself as a criticism, and again, I am very genuinely grateful that this movement exists to do key things at which my own movement has completely failed. But none of that is any good reason for conservative academics to engage them for their ideas, or to hold conferences like this one.

In fact, I think the real reason for the preoccupation may not actually be that wholesome. I think that #hipsterantitrust makes a convenient straw man, an easier punching bag than opponents who are generating real ideas. They also are useful in that they are so very visible. Arguing with the person every journalist is currently interested in might be a way to keep a spotlight on yourself, too.

There are better things to talk about. Why not have an argument with John Kwoka and his new empirical evidence? Except for a couple of pissy takes by agency economists, who presumably reacted mainly because their own performance was under attack (e.g., this and this), there has hardly been any real talk about it. Or why not have an argument with Dennis Mueller, or the other economists of his ilk who have demonstrated in a large empirical literature that growth by acquisition may do very little real good—in fact, may do net harm on average, to the firms’ own shareholders, at least among public firms? Why not argue with the authors of this remarkable new study, which, if it holds up in the forthcoming period of critique, could establish some of the most influential evidence of anticompetitive harm in decades?

Or talk to me, about my ideas. I think you guys are wrong a lot, often failing (with rare exceptions) to acknowledge how ideologically motivated your movement is, and I think the real world bad consequences of your views are so serious they’re beginning to border on the absurd. I’ve suggested alternative ideas, like that we seriously need to reconsider our broken merger policy. We absolutely must have at least one meaningful rule of prospective, no-fault concentration control, or antitrust won’t work. I’ve said it, it’s very different than your views, and I’d love it if you read it and told me why you disagree.

Let’s talk about that stuff instead.

[1] Yes, yes, I know. Some people who seem to me “conservative” don’t like to be called that, and want to be called “libertarian” or other things. I mean no offense, though it does tickle me to tease friends a bit, and nag them to own things that I think they ought to own. All I mean is that this blog seems devoted to “conservative” vision, that defers to private institutions and automatic processes, and objects to affirmative policy action by public bodies. None of that seems to me to especially driven by individual “liberty,” for what it’s worth.

[2] I don’t know if I’m a “progressive” or not, because I don’t know what the word means. Herbert Hovenkamp has a great new paper on its meaning throughout antitrust history. But whatever it means, and despite the confusion with which pundits sometimes greet me, I am not one part of the Open Markets collective. I just happen to think that, mirabile dictu, plaintiffs ought to win sometimes.

[3] At least sometimes, the goal is also to stave off disruptive challenge to the big firm’s own current business. For example, that seemed pretty obviously like a risk when Avis bought ZipCar.

[4] I guess wondered too if there just some delicious satisfaction over liberal opposition to this deal, as it involved a bougie, organic market and den of high snobbery. Just the sort of place where liberals fail to grasp their own ironies. That’s probably a story for a different day.

Steve Horwitz is the Distinguished Professor of Free Enterprise, Department of Economics, at Ball State University

In considering the importance of the Amazon merger with Whole Foods, some history is helpful. The relevant historical context here is not just the history of those two firms, but the longer and broader history of the grocery industry. In particular, it’s helpful to see this merger as the next stage in a pattern of falling transaction costs and shifting specializations that have driven that evolutionary process. We can see how the two parties to this merger both came to prominence independently as part of that process, and how the merger is the natural next step.

At the start of the 20th century, many Americans still produced a good deal of their own food. Where the rest was purchased depended on where one lived. Small town folks had their general store while more urban folks had a variety of specialty shops to choose from. You got your meat from a butcher, your bread from a baker, fresh fruits and veggies elsewhere, and dry goods yet another place. That specialization had its advantages, but it also imposed an increasing burden on families as life got busier and more women began to enter the workforce. It required time and resources to make those multiple trips.

The modern supermarket emerges in the 1930s as a one-stop shop for many of the things that previously were purchased separately. The advent of car culture enabled firms to locate outside of downtown areas where parking was easier and land was cheaper. Smaller inventions like the shopping cart enabled people to navigate larger stores and buy more goods, which in turn aligned with the lower average costs associated with greater size. It took modern technologies such as reliable refrigeration, new techniques for freezing food, and advances in transportation to make the supermarket feasible. By the 1960s and 70s, true supermarkets were ubiquitous, though they were still small, dim, and lacking in variety compared to the food palaces of the 21st century.

Continued marginal improvements in technology and transportation enabled the supermarkets of the 70s to become the much larger and more luxurious versions that appeared by the turn of the 21st century. Since then, transportation technology has not improved that much, but communication and other forms of technology have, which brings us to one of the two players in our story: Amazon. Amazon’s rise has been fueled by the combination of increased computing power, the Internet, and the falling cost of consumer computing technology, especially smartphones. All of these factors have enabled Amazon to assemble its own inventories, tap into those of other sellers, and bring them all to consumers cheaply and quickly. Also not to be overlooked is the marketing genius of “Prime,” which convinced consumers to essentially pay their shipping costs up front, removing the pain of positive shipping costs on the margin. Amazon also built on the advances of other large-scale retailers like Walmart in the decade or two before. The irony now is that many of them are trying to match the Amazon experience of not having to go into a physical store by offering delivery to your car for orders placed online. And more mega-markets are offering pick-up or home delivery as an option as well.

On the grocery side, a different trend was emerging. Even as large mega-markets were becoming more popular, consumers with more resources and more concerns about where their food came from and its overall quality were willing to pay more for a more upscale and ethically concerned shopping experience. The growth of markets like Whole Foods, Fresh Market, and Fresh Thyme made clear there was a demand for smaller, higher quality stores that focused on fresh produce, meats, and fish as well as upscale prepared food. What all of these stores gave up to go smaller was the selection of dry goods that had come to characterize the mega-markets. This strategy made sense because of firms like Walmart and Target, which had dramatically dropped the consumer cost of those goods, not to mention the wholesale clubs like Costco. The experience that was once associated with the mega-market opportunity to get everything was being fragmented by the combination of upscale grocery stores and low-cost big boxes, with the latter’s entry into the grocery market duly noted.

So as Amazon’s growth in the delivery of non-perishable goods increased, more consumers were purchasing items previously bought in a supermarket or a big box store through Amazon. The big advantage is delivery, and that is just another step in recognizing the increasing value of people’s time that began the move to supermarkets in the first place. We’ve gone from not having the time to make multiple stops for shopping to not wanting to either get out of our car or even leave the house to do so. Given Amazon’s growth in the delivery of non-perishables, the idea of merging with a grocery store that specialized in providing high-quality fresh perishables was not hard to fathom. And a year ago that came to fruition with the merger with Whole Foods.

The merger points to what the future of the grocery industry might well look like, which in some ways looks like a return to the past. I think that we will see the hollowing out of the center of the supermarket. All of the non-perishables, whether food items like breakfast cereal or household goods like toilet paper, will slowly disappear, with consumers purchasing them at cheaper big-box stores, or through delivery services like Amazon. The grocery experience will become more focused on the periphery of the store: produce, meats, dairy, frozen foods, and prepared foods. The high-quality of those goods will make the grocery store seem something like a return to the past, with specialized butchers and bakers and the like, but now all under one roof to minimize the transportation costs. These all remain more or less experience goods that many consumers want to be able to see or touch or smell before they purchase, making them harder to sell through delivery, especially when one considers the additional shipping costs involved with keeping them fresh.

In these ways, the Amazon-Whole Foods merger is both the predictable outcome of the history of the grocery store and a pointer for where it is headed in the future. Already we are beginning to seem some interesting economic benefits coming from the synergies involved. One of the more noticeable ones is that many Whole Foods are now offering two hour delivery. As noted earlier, many of the traditional grocery chains are now offering delivery, so it makes sense that the merged firm would combine the distinctive upscale selection at Whole Foods with Amazon’s delivery capacity. To the degree consumers have a great deal of trust in the Amazon brand name when it comes to delivery, this looks like a smart move for Amazon and a win for consumers.

Another early move is to offer in-store discounts for Amazon Prime members. In essence what Amazon has done here is to use Prime membership as the equivalent of a grocery loyalty card. You get the discounts applied by scanning the Whole Foods app at the register after you have linked that app to your Amazon account. In the same way that traditional grocery store loyalty cards enable firms to have enormous data on your purchasing patterns and to then customize coupons for you, Amazon already had a lot of data on Prime members and can easily extend the same customization you get when you login to Amazon to customers who also shop at Whole Foods. Economically, the Prime discounts are, like coupons, a form of price discrimination that hopes to pull Prime members into Whole Foods who see it as a close enough substitute for their normal grocery store. Given Whole Foods’ well-earned reputation as more expensive than traditional grocery stores, the Prime discounts might be enough to pull people away from something like Kroger and into Whole Foods more often.

With Amazon’s enormous database and the logistics that it can bring to delivery, I suspect that we are shortly going to see all kinds of ways in which the grocery shopping experience at Whole Foods will become extraordinarily customized in the same way the shopping experience at Amazon already is. It will also be interesting to see if Whole Foods doesn’t move to a membership model based on having Prime.

Viewed from the long history of the evolution of the grocery store, the Amazon-Whole Foods merger made sense as the start of the next stage of that historical process. The combination of increased wealth that is driving the demand for upscale grocery stores, and the corresponding increase in the value of people’s time that is driving the demand for one-stop shopping and various forms of pick-up and delivery, makes clear the potential benefits of this merger. Amazon was already beginning to make a mark in the sale and delivery of the non-perishables and dry goods that upscale groceries tend to have less of. Acquiring Whole Foods gives it a way to expand that into perishables in a very sensible way. We are only beginning to see the synergies that this combination will produce. Its long-term effect on the structure of the grocery business will be significant and highly beneficial for consumers.

Dirk Auer is a Research Fellow at the Liege Competition and Innovation Institute

Antitrust populism

What is antitrust populism? In a deeply insightful paper, Barack Orbach defines it as “the use of thin ideas, exaggerations, and anxieties to advance antitrust theories”. From a policy standpoint, this often leads to the protection of small businesses and the identification of large business size as evil.

There is nothing new about this phenomenon. During the 19th century, newspapers fretted over the power of ice “monopolies”, the railroads and the Standard Oil Company to name but a few. Economic populism was also a hallmark of the various reforms which followed the Great Depression. These views were notably championed by the late Justice Brandeis. Antitrust populism witnessed a resurgence in the early 70s when Ralph Nader published an alarming report on market concentration in the United States. More recently, some pundits worried about the AOL / Time Warner merger. They notably argued that the so-called “deal of the century” would bring the internet under the control of a single company (the merger actually turned out to be an abject failure).

Which brings us to last year’s Amazon / Whole foods merger. In what follows, I hope to convince readers that the pushback against this merger was nothing but old wine in a new bottle.

The Amazon / Whole Foods claims

On June 16, 2017, Amazon revealed its intention to purchase the Whole Foods grocery chain. Despite Whole Foods’ tiny 1.2% share of U.S. food and grocery sales, the announcement, along with the FTC’s rapid clearance of the deal, caused an uproar amongst some commentators.

Jim Cramer said Amazon would “dominate food within the next two years”. Barry Lynn, Director of the Open Markets Institute, claimed the deal would crush competition and allow Amazon to monopolize commerce in the United States. He added that only Uncle Sam could save Amazon’s rivals from death. Lina Khan, also from the Open Markets Institute, intimated that Amazon would use its data to transfer its dominance from online to physical retail. Tim Wu called the merger a super-monopoly, referring to the multiple monopolies that Amazon would hold after the merger (presumably adding a grocery monopoly to its dominance of online retail). The list goes on…

To support their claims, many of these commentators pointed to the merger’s effect on the stock market (Amazon’s competitors took a heavy hit when the deal was announced). With these stock prices in mind, Scott Galloway, a professor at NYU Stern, claimed that markets were failing and that Amazon should be broken up.

The gist of these arguments is simple. The Amazon / Whole Foods merger would lead to the exclusion of competitors, with Amazon leveraging its swaths of data and pricing below costs. All of this begs a simple question: have these prophecies come to pass?

Reports of physical retail’s death have been greatly exaggerated

A year after the merger, the stock prices of Amazon and its rivals paint a very different – far less troubling – picture:

Close Price 06/01/2017 Close Price 08/24/2017 % Change
Kohl’s 38.67 80.86 109%
Amazon 968 1,905.39 97%
Target 52.29 87.31 67%
Macy’s 23.24 36.51 57%
Costco 159.93 231.28 45%
BestBuy 57.33 82.08 43%
Kroger 23.32 31.2 34%
Nordstrom 47.83 62.06 30%
Walmart 75.68 94.95 25%
S&P 500 2,423.41 2,874.69 19%
JC Penny 4.65 1.83 -61%
Sears 8.86 1.1 -88%

Table 1: Closing prices of Amazon and its rivals’ stock (Source: Yahoo Finance)

Most of Amazon’s rivals have registered significant gains since the Whole Foods deal was announced. Chief among them are Kohl’s and BestBuy, whose stocks are currently at all-time highs. Kohl’s stock actually outperformed Amazon’s (+109% versus +97%). Target, Macy’s, Costco, Kroger, Nordstrom and Walmart have also shown healthy gains. Their stocks have all risen faster than the S&P 500 index. Granted, some rivals have not been so successful. The stocks of J.C. Penney and Sears have hit all-time lows, and both companies are facing the prospect of bankruptcy (though their decline started well before the Whole Foods merger).

Although it is still too early to draw any firm conclusions, it seems that the merger’s anticompetitive potential was dramatically overplayed by its opponents. Most of Amazon’s direct rivals are still making healthy profits (as reflected by their stock prices). This is inconsistent with the vertical foreclosure and predatory pricing stories put forward by critics. Under vertical foreclosure, rivals are deprived of key inputs (or outputs) which prevents them from competing. Predatory pricing occurs when a dominant firm prices below cost in the hope of recouping its losses once rivals have exited the market. Crucially, both of these scenarios necessarily imply that the bottom lines of rivals will suffer (ultimately falling to zero). At the time of writing, this simply has not been the case.

Of course, there are some legitimate concerns about the above conclusion. Just because anticompetitive scenarios have not yet transpired does not guarantee that they will not occur in the future. Likewise, the overall profits of rivals may conceal losses in those markets where they actually compete with Amazon. Finally, it is possible that these rivals’ profits would have been higher had the merger not gone through. Although these potential counterarguments might deserve some attention, they do not detract from the inescapable conclusion that, as of yet, Amazon has not managed to exclude any of its large retail competitors thanks to its acquisition of Whole Foods.

The merger’s many overlooked benefits

The problem with antitrust populism is not just that it leads to unfounded predictions regarding the negative effects of a given business practice. It also ignores the significant gains which consumers may reap from these practices. The Amazon / Whole foods offers a case in point.

Amazon’s acquisition of Whole Foods has already generated significant benefits for consumers. First and foremost, Amazon immediately implemented a number of price reductions following the deal. It also started to harness the various synergies that existed between itself and Whole Foods. It notably made some of Whole Food’s items purchasable on Amazon, and placed Amazon lockers in numerous Whole Foods stores (allowing consumers to pick-up packages from these locations). The online retailer also ensured that its Prime members would receive various discounts when they visit Whole Foods stores.

The merger’s benefits do not stop with Amazon. As others have pointed out, rivals reacted to the merger by replicating these cost reductions and innovative services. Walmart notably concluded a deal with Google to allow users to make purchases using Google’s voice assistant. Kroger decreased its prices and expanded its delivery service. And Target introduced a same day delivery service.

Of course, it is hard to tell whether these benefits would have been achieved without the Amazon / Whole foods merger. Amazon could conceivably have entered into a long term contract with Whole Foods, and rivals may have introduced their improvements regardless of the merger. But this is far from certain. As Benjamin Klein, Robert Crawford and Armen Alchian famously pointed out, long term contractual relationships can sometimes entail significant practical obstacles. The upshot is that it is often more cost-effective for firms to opt for an outright merger. And if a merger was indeed necessary to generate synergies between Amazon and Whole Foods, then there is little doubt that it also played some part in the competitive response of rivals. In short, there are strong reasons to believe that the Amazon’s acquisition of Whole Foods may have caused some of the benefits which U.S. retail consumers are currently enjoying.

Concluding remarks

I hope that the preceding paragraphs will convince readers that the response of many commentators to the Amazon / Whole Foods merger was simply antitrust populism. Nothing at the time of the merger justified the doomsday scenarios that were being bandied about. One year on, the fears purveyed by these critics seem even less founded. The U.S. retail sector is in fine form, consumers are enjoying cheaper goods and better service, and there are no signs of anticompetitive exclusion on the horizon.

Hal Singer is a Principal at Economists Incorporated and an Adjunct professor at Georgetown University’s McDonough School of Business

When the Federal Trade Commission (FTC) waved through Amazon’s purchase of Whole Foods without batting an eye last August, some New Brandeisians predicted doom. But I was a bit more sanguine. And that’s still the case on the one-year anniversary of the deal. Here’s why.

The mere act of vertical integration by a dominant platform such as Amazon isn’t by itself cause for alarm. I don’t begrudge Amazon making a run at local groceries. And unless New Brandeisism is adopted at the FTC—or Congress embraces its arguments for managing markets through structural separation—there’s nothing to stop Amazon, Facebook or Google from invading “verticals” that reside adjacent to (and often depend on) their platforms.

It’s vertical integration combined with discrimination in favor of the platform’s affiliated products (or content, in the case of Google) that is problematic in my mind. And until I get Congress to enact a nondiscrimination regime that operates outside of antitrust, there’s nothing to stop the tech giants from dominating large portions of the Internet economy through such anti-competitive conduct.

(There are other potential merger-related effects outside of discrimination that should be monitored, such as the added market power that comes from accumulating buyer information across online and brick-and-mortal activities, or the squeezing of supplier margins or workers’ compensation. But those effects are outside the scope of this short piece.)

Amazon’s users likely don’t perceive its platform to fill the same purpose for every product available on Amazon. While I can envision Amazon exploiting its dominant e-commerce platform to dominate the online sale of (say) batteries, online apparel and footware (think Zappos), and diapers (think, it’s harder to imagine Amazon doing the same for local groceries. An Amazon user who gets steered by Alexa (or Amazon’s search algorithm) to Amazon-branded batteries without putting up a fight seems plausible. But how many users would ask Alexa for a half pound of ground lean beef?

(Another brief digression: It would be very hard to make an antitrust claim that Amazon is leveraging its platform to monopolize the market for batteries. Presumably, Amazon has no plans to raise battery prices or restrict battery sales, but instead is content to earn the narrow margins in that vertical and perhaps learn how its customers plan to use their batteries. The bigger threat is a harm to innovation, which admittedly in the not-very-innovative battery vertical could be less meaningful than short-term battery price declines from a consumer-welfare perspective. My simple point is that batteries represent a vertical that is vulnerable to an Amazon takeover given the natural synergies between its platform and the purchase of batteries. Groceries, not so much.)

Perhaps I’m an old-fashioned Gen Xer, but I place local groceries in the same category—a bubble really—as yoga studios or coffee houses that (unlike Starbucks) serve lattes with foam art. Things inside this bubble managed to survive the (partially Amazon-driven) retail apocalypse. These “experiential” products and services are hard to sell over the Internet. Consumers enjoy the physical interaction associated with shopping for groceries in much the same way they enjoy the social engagement of a yoga studio or a coffee shop. The sale of “Holiday in Italy” cheese is much easier if the customer can sample the merchandise.

When it comes to non-experiential items, by contrast, Amazon can be trusted to deliver the commodity to your front door. A battery is a battery is a battery. But can Amazon, even in conjunction with a high-end, organic grocery label such as Whole Foods, be trusted to replace your judgments when it comes to meats, vegetables, fish or other items that require touch, feel, and smell?

Even for those daring souls who are willing to purchase groceries online, it might be hard to dislodge a customer of Peapod (virtually shopping at Giant) or Instacart (virtually shopping at Wegmans) or FreshDirect through some combination of leveraging the Amazon platform—say, by elevating Whole Foods to the top of AmazonFresh searches—and offering subsidized delivery of Whole Foods’ produce. Customers of rival online produce providers didn’t wind up there by accident; instead, they likely found their favorite online grocer through trial and error (and comparison with brick-and-mortar options), and have now developed an affinity. Moreover, many of those customers enjoy subsidized food delivery from their preferred vendors, largely negating the Amazon delivery subsidy. And since the Amazon-Whole Foods merger, many brick-and-mortar grocers such as Kroger, Target and Walmart have partnered or acquired online grocery companies or same-day delivery companies, indicating that they plan to fight hard for this slice of the grocery marketplace.

That said, Amazon is still the most popular place to shop among those inclined to purchase groceries online. According to a Morgan Stanley July 2018 survey, 56 percent of such respondents said they would most likely order from Amazon, compared with 14 percent who would go to a mass merchandiser and 10 percent who would use their local supermarket. It is this segment of the marketplace that is most vulnerable to a leveraging strategy.

A straightforward way to test whether Amazon’s platform is capable of steering grocery purchases towards Whole Foods is to compare Whole Food’s sales (or in-region market shares) before and after the merger. This test is admittedly crude for at least three reasons. First, it might take some time for Amazon to hammer out the kinks of integration—Whole Foods has just begun to centralize purchasing its supplies and merchandizing—and for those who are willing to shop online for groceries to become a sizable share of buyers in the grocery market. According to Forrester Research, just three percent of the world’s grocery spending happened online last year, though that share is expected to reach six percent by 2022. Second, a simple before-after comparison implicitly makes Whole Foods’ 2017 sales the benchmark, when in fact Whole Foods’ sales in 2018 may have fallen relative to 2017 but for some merger-induced advantage; at the time of the deal, Whole Foods was struggling, as same-store sales declined by 1.5 percent in 2017. Third, Amazon is not as forthcoming as Whole Foods was with information on grocery data such as same-store sales growth. (That Whole Foods’ sales increased post-merger could be consistent with a merger-induced synergy unrelated to discrimination. Further inquiry would be needed to rule out that alternative hypothesis.)

Even with these caveats, it’s still worth looking at the recent trends. Whole Foods’s sales since 2015 have been flat, with only low single-digit growth, according to data from Second Measure. This suggests Whole Foods is not yet getting a lift from the relationship. However, the percentage of Whole Foods’ new customers who are Prime Members increased post-merger, from 34 percent in June 2017 to 41 percent in June 2018. This suggests that Amazon’s platform is delivering customers to Whole Foods; to be fair, some portion of that lift was due to the growth of Prime membership generally.

Maybe I’m wrong, and Amazon will soon obliterate the local grocery vertical the same way that it overtook diapers and (soon) batteries. The future grocery store might not sell these homogenous things. But based on the latest available sales data from Whole Foods, there isn’t any reason to panic. Yet.


Eric Fruits is the Chief Economist at the International Center for Law & Economics

Last July, U.S. Congressman David N. Cicilline, who serves on the House Judiciary Antitrust Subcommittee, called for a hearing on Amazon’s proposed $13.7 billion acquisition of Whole Foods. The Congressman claimed he was not “taking a position on the legality” of Amazon’s attempt to purchase Whole Foods. In fact, his letter noted that “several leading antitrust scholars” had suggested the merger would be beneficial to consumers.

The letter, however, was not so much about the merger itself. Instead it was an attempt to convince the antitrust subcommittee to jump over analysis of relevant markets, prices, and consumer welfare and go straight to speculation about small business, labor markets, and income inequality. This sort of speculation is a key component of the populist antitrust movement.

Carl Shapiro, the government’s economics expert opposing the AT&T-Time Warner merger, seems skeptical of much of the antitrust populists’ Amazon rhetoric:

Simply saying that Amazon has grown like a weed, charges very low prices, and has driven many smaller retailers out of business is not sufficient. Where is the consumer harm?

On its face, there was nothing about the Amazon/Whole Foods merger that should have raised any antitrust concerns.

  1. Both Amazon and Whole Foods comprise a small share of the retail food market;
  2. Amazon’s size and consumer reach are not a barrier to entry of new firms or expansion of existing firms;
  3. Amazon’s prioritization of its own products is no different from the behavior of every other major grocer;
  4. Amazon in not an essential facility and there is no risk of foreclosure;
  5. Stock prices provided no meaningful information regarding the competitive impacts of the merger.

While one year is too soon to fully judge the competitive impacts of the Amazon-Whole Foods merger, nevertheless, it appears that much of the populist antitrust movement’s speculation that the merger would destroy competition and competitors and impoverish workers has failed to materialize.

Both Amazon and Whole Foods comprise a small share of the retail food market

Citing the Wall Street Journal, Cicilline’s letter noted that Amazon accounts for “more than half of online food orders through its Fresh, Prime and Prime Now services.” Also in the article, but missing from Cicilline’s letter, is the observation that (1) grocery delivery accounted for less than 2 percent of food retail sales in 2016 and (2) grocery delivery is concentrated in cities and surrounding suburbs.

Over the past year, the U.S. saw $5.2 trillion in retail sales, according to the Census Bureau.

  • Whole Foods has less than 1.5 percent of the food retail market, or about 0.2 percent of total retail sales.
  • About 20 percent of Whole Foods’ sales are prepared foods and 15 percent of its revenues come from its exclusive brands such as 365 Everyday Value.
  • Amazon accounts for one-tenth of one percent of U.S. grocery sales.

Viewed as a merger of two food retailers, Amazon’s purchase of Whole Foods would be characterized correctly as a horizontal merger. With each firm comprising a small portion of the retail food market, it should have been—and was—presumed the merger would not harm competition, nor would it result in consolidation of the retail sector.

Even critics of Amazon’s size and conduct had concluded the merger would likely benefit consumers. For example researchers at the Roosevelt Institute concluded, “Amazon will likely aim to expand the reach of the Whole Foods brand by lowering prices.” Indeed, soon after the merger closed, Whole Foods slashed the price of staples such as organic produce.

Amazon’s size and consumer reach are not a barrier to entry of new firms or expansion of existing firms

Cicilline’s letter speculated Amazon’s competitive advantages in terms of size, consumer reach, and ability to absorb losses could discourage innovation and entrance of firms in the areas of grocery and food delivery.

Since United States v. Grinnell Corp., antitrust policy has given safe harbor to firms that obtained market share “as a consequence of a superior product, business acumen, or historic accident.” In can easily be argued that Amazon’s consumer reach is due in a large part to offering a superior product in the form of a easy-to-use interface for both buyers and sellers, business acumen in the development of a superior system of distribution and logistics, as well as the historic accident of being an early entrant into the market during the dot-com boom.

In economics, a barrier to entry is a condition that makes the long run costs of a new entrant into a market higher than the long run costs of the existing firms in the market. The Ninth Circuit in Rebel Oil Co. v. Atlantic Richfield Co. defined entry barriers as:

“additional long run costs that were not incurred by incumbent firms but must be incurred by new entrants,” or “factors in the market that deter entry while permitting incumbent firms to earn monopoly returns.”

The court then identifies the main sources of entry barriers as:

  1. Legal license requirements;
  2. Control of an essential or superior resource;
  3. Entrenched buyer preferences for established brands;
  4. Capital market evaluations imposing higher capital costs on new entrants; and,
  5. Economies of scale, in some situations.

The entry and growth of Instacart, Uber Eats, and Postmates, are evidence that Amazon’s size, consumer reach, and ability to absorb losses has not presented any barriers to entry of new firms or the expansion of existing firms into the retail food delivery business.

The Wall Street Journal reports that since the merger, several grocers have added online ordering while hundreds of health food stores have seen increased dollar and unit sales from a year ago. Trader Joe’s and Aldi have also experienced strong sales growth since the merger.

Amazon’s prioritization of its own products is no different from the behavior of every other major grocer

Cicilline’s letter asserted that Amazon’s purchase of Whole Foods would enable Amazon to prioritize its products and services over competitors. Critics of Amazon’s behavior claim such prioritization was already occurring before the merger. Cicilline’s letter provided no mechanism by which the merger in and of itself would increase such prioritization, or even if such an increase could be measured. Even so, the letter fails to address the key issue of whether prioritization is an anticompetitive act. If it is, then just about every major food retailer in the U.S. is behaving anticompetitively.

  • In 1997, Whole Foods launched its 365 Everyday Value line of products. Five years later, it launched its 365 Organic Everyday Value line. These products are given prominent shelf space and are often featured in promotional “end caps” in Whole Foods stores. In 2015, Whole Foods introduced 365 by Whole Foods Market, a concept store based on the 365 Everyday Value brand. The pre-merger photo below shows how Whole Foods prioritized its own brands within its stores, with placement at eye-level and in promotional islands.Prioritization-365-Everyday-ValuePrioritization-365-Everyday-Value-oils
  • Costco provides prominent shelf space to its own Kirkland branded products. Most of the products sold in Trader Joe’s stores carry the company’s private label.
  • Kroger has a number of private label brands, including Private Selection and Simple Truth as well as value brands such as Psst and Heritage Farms. Kroger frequently promotes Private Selection and Simple Truth with advertising, coupons, and other promotions including prominent shelf space.

Consumers quickly learn whether store-brand “fruit rings” are a better value than Kellogg’s Froot Loops. Promotional activities and prioritization may nudge the marginal buyer and entice a first purchase, but cannot fool consumers over the long run.

Amazon in not an essential facility and there is no risk of foreclosure

Cicilline’s letter cited Gene Kimmelman, the President of Public Knowledge, to allude that this specific merger would allow Amazon to “foreclose” competition.

In antitrust, concerns about foreclosure are tied to the concept of an essential facility. For these concerns to be valid, access to Amazon’s platform must be essential — without access, competitors would be unable to sell food and/or unable to sell food online. In addition to being essential, there must be evidence of foreclosure — competing sellers are kept off of the essential platform.

A key concept in antitrust economics is that of substitutability: whether one good or service is reasonably interchangeable with another. If there are reasonable substitutes for sales through Amazon’s platform, then the platform is not an essential facility. There are many reasonable substitutes for Amazon’s platform, including a network of retail stores and a standalone website with distribution through USPS, UPS, FedEx, and other delivery services. Indeed, Whole Foods and other grocers had and have operated profitably without selling through Amazon’s platform. Kroger provides delivery of groceries ordered online via Instacart and grocery pickup with its own service, ClickList. Safeway and Albertsons also offer home delivery of groceries ordered online. It the face of these observations, it is obvious that Amazon’s platform is not an essential facility. Thus even if Amazon keeps rival products off its platform, these competitors would not be foreclosed from selling their products.

Those who argue that Amazon is an essential facility seem to be arguing the concept of essential facility is a matter of degree: If Amazon provided more favorable terms to sellers on its platform, those sellers would would earn more profits than than they currently receive. This flies in the face of the sine qua non of the essential facility doctrine–that the facility is essential. Amazon may be a useful platform to sell products. It may be a profitable platform. But, it is not an essential platform.

No evidence that Amazon or Whole Foods pay lower wages

Cicilline’s letter also seemed to suggest that the merger would result in reduced employment and lower wages. The letter claimed that “mounting economic research” indicates that the U.S. has experienced “decades of consolidation” and that such consolidation has led to a monopsony power in labor markets leading to lower employee wages.

The letter’s reasoning echos conclusions of a report published by the Institute for Local Self-Reliance (ILSR), an advocacy group for “community-rooted” enterprise.

As pointed out by Geoffrey Manne and Jennifer Maclean:

Cobbling together statistics, anecdotes, and assumptions, the report formulates logical fallacies about Amazon’s effect on the retail job market. The title itself, Amazon’s Stranglehold: How the Company’s Tightening Grip is Stifling Competition, Eroding Jobs, and Threatening Communities, conjures a dystopian fever dream.

The ILSR report claims that “Amazon’s tightening hold on our economy…, increasing dominance …, and ability to crush smaller rivals and block new firms from entering markets … is hobbling job growth [and] propelling economic inequality.” At the same time, the report ignores how efficiencies provided by Amazon’s e-commerce platform may actually have beneficial effects on employment—and it fails to address whether, when retail jobs are negatively affected, there might be offsetting gains in other areas, like lower prices.

Manne and Maclean indicate if e-commerce platforms continue to appeal to buyers and sellers, this may mean fewer traditional retail jobs —or it could simply mean a shift in the types of activities performed by people in retail occupations. It might also mean more jobs in manufacturing, transportation, advertising, coding, and logistics, to name a few.

In fact, information from the Bureau of Labor Statistics shows that employment in warehousing and storage has grown by more than 50 percent since the pre-recession peak. Over the same period, average hourly earnings have increased by more than 20 percent. Over the past year, average hourly earnings for these workers have grown at approximately the same rate as the average across all employees.

Stock prices provided no meaningful information regarding the competitive impacts of the Amazon/Whole Foods merger

Cicilline’s letter noted that Blue Apron’s initial public offering price was reduced by a third following the announcement of the Amazon/Whole Foods merger. However, two weeks prior to the merger, market observers were predicting Blue Apron’s IPO would be a disappointment. A Forbes contributor provided three reasons investors should “gag” on Blue Apron’s IPO:  (1) unprofitable growth with costs growing faster than revenues, (2) competition from rivals including HelloFresh, Sun Basket, and Purple Carrot, and (3) weak shareholder protections associated with the two founders retaining a large portion of the voting shares of stock. Since the Amazon-Whole Foods merger, Blue Apron’s new, automated facility failed to ramp up as planned, resulting in late orders, missing ingredients, and higher costs, according to the Wall Street Journal.

Cicilline’s letter noted that the announcement that Amazon would purchase Whole Foods had a “similar effect” on what he describes as the “traditional retail grocery market.” The letter identifies Walmart, Kroger, Costco, and Target as Amazon’s competitors in this market. In this way, Cicilline appears to abandon the FTC’s view that Whole Foods operates in the “premium natural and organic supermarkets market.” Instead, the letter implicitly concludes, Whole Foods competes in a larger market that includes grocery stores, supercenters, and warehouse clubs.

Missing from Cicilline’s letter is the observation that the day before the Amazon/Whole Foods merger was announced, Kroger announced that it reduced its profit outlook by 10 percent. The same day—one day before the merger announcement–German grocer Lidl announced the locations of the first 10 stores to open in the U.S. More than a month before the Whole Foods purchase was announced, discount grocery chain Aldi described plans to invest $5 billion to open nearly 900 stores and remodel hundreds of other stores throughout the U.S. The entry of new competitors and expansion of existing competitors is at odds with speculation of consolidation in the retail grocery sector. Since the merger, Kroger’s share price has increased more that double the rate of growth of the Dow Jones Industrial Average.

One year is too soon to judge the competitive impacts of the Amazon-Whole Foods merger. Nevertheless, it appears that much of the populist antitrust movement’s speculation that the merger would destroy competition and competitors and impoverish workers has failed to materialize.


On Tuesday, August 28, 2018, Truth on the Market and the International Center for Law and Economics presented a blog symposium — Is Amazon’s Appetite Bottomless? The Whole Foods Merger After One Year — that looked at the concerns surrounding the closing of the Amazon-Whole Foods merger, and how those concerns had played out over the last year.

The difficulty presented by the merger was, in some ways, its lack of difficulty: Even critics, while hearkening back to the Brandeisian fear of large firms, had little by way of legal objection to offer against the merger. Despite the acknowledged lack of an obvious legal basis for challenging the merger, most critics nevertheless expressed a somewhat inchoate and generalized concern that the merger would hasten the death of brick-and-mortar retail and imperil competition in the grocery industry. Critics further pointed to particular, related issues largely outside the scope of modern antitrust law — issues relating to the presumed effects of the merger on “localism” (i.e., small, local competitors), retail workers, startups with ancillary businesses (e.g., delivery services), data collection and use, and the like.

Steven Horwitz opened the symposium with an insightful and highly recommended post detailing the development of the grocery industry from its inception. Tracing through that history, Horwitz was optimistic that

Viewed from the long history of the evolution of the grocery store, the Amazon-Whole Foods merger made sense as the start of the next stage of that historical process. The combination of increased wealth that is driving the demand for upscale grocery stores, and the corresponding increase in the value of people’s time that is driving the demand for one-stop shopping and various forms of pick-up and delivery, makes clear the potential benefits of this merger.

Others in the symposium similarly acknowledged the potential transformation of the industry brought on by the merger, but challenged the critics’ despairing characterization of that transformation (Auer, Manne & Stout, Rinehart, Fruits, Atkinson).

At the most basic level, it was noted that, in the immediate aftermath of the merger, Whole Foods dropped prices across a number of categories as it sought to shore up its competitive position (Auer). Further, under relevant antitrust metrics — e.g., market share, ease of competitive entry, potential for exclusionary conduct — the merger was completely unobjectionable under existing doctrine (Fruits).

To critics’ claims that Amazon in general, and the merger in particular, was decimating the retail industry, several posts discussed the updated evidence suggesting that retail is not actually on the decline (although some individual retailers are certainly struggling to compete) (Auer, Manne & Stout). Moreover, and following from Horwitz’s account of the evolution of the grocery industry, it appears that the actual trajectory of the industry is not an either/or between online and offline, but instead a movement toward integrating both models into a single retail experience (Manne & Stout). Further, the post-merger flurry of business model innovation, venture capital investment, and new startup activity demonstrates that, confronted with entrepreneurial competitors like Walmart, Kroger, Aldi, and Instacart, Amazon’s impressive position online has not translated into an automatic domination of the traditional grocery industry (Manne & Stout).  

Symposium participants more circumspect about the merger suggested that Amazon’s behavior may be laying the groundwork for an eventual monopsony case (Sagers). Further, it was suggested, a future Section 2 case, difficult under prevailing antitrust orthodoxy, could be brought with a creative approach to market definition in light of Amazon’s conduct with its marketplace participants, its aggressive ebook contracting practices, and its development and roll-out of its own private label brands (Sagers).

Skeptics also picked up on early critics’ concerns about the aggregation of large amounts of consumer data, and worried that the merger could be part of a pattern representing a real, long-term threat to consumers that antitrust does not take seriously enough (Bona & Levitsky). Sounding a further alarm, Hal Singer noted that Amazon’s interest in pushing into new markets with data generated by, for example, devices like its Echo line could bolster its ability to exclude competitors.

More fundamentally, these contributors echoed the merger critics’ concerns that antitrust does not adequately take account of other values such as “promoting local, community-based, organic food production or ‘small firms’ in general.” (Bona & Levitsky; Singer).

Rob Atkinson, however, pointed out that these values are idiosyncratic and not likely shared by the vast majority of the population — and that antitrust law shouldn’t have anything to do with them:

In short, most of the opposition to Amazon/Whole Foods merger had little or nothing to do with economics and consumer welfare. It had everything to do with a competing vision for the kind of society we want to live in. The neo-Brandesian opponents, who Lind and I term “progressive localists”, seek an alternative economy predominantly made up of small firms, supported by big government and protected from global competition.

And Dirk Auer noted that early critics’ prophecies of foreclosure of competition through “data leveraging” and below-cost pricing hadn’t remotely come to pass, thus far.

Meanwhile, other contributors noted the paucity of evidence supporting many of these assertions, and pointed out the manifest value the merger seemed to be creating by pressuring competitors to adapt and better respond to consumers’ preferences (Horwitz, Rinehart, Auer, Fruits, Manne & Stout) — in the process shoring up, rather than killing, even smaller retailers that are willing and able to evolve with changing technology and shifting consumer preferences. “For all the talk of retail dying, the stores that are actually dying are the ones that fail to cater to their customers, not the ones that happen to be offline” (Manne & Stout).

At the same time, not all merger skeptics were moved by the Neo-Brandeisian assertions. Chris Sagers, for example, finds much of the populist antitrust objection more public relations than substance. He suggested perhaps not taking these ideas and their promoters so seriously, and instead focusing on antitrust advocates with “real ideas” (like Sagers himself, of course).

Coming from a different angle, Will Rinehart also suggested not taking the criticisms too seriously, pointing to the evolving and complicated effects of the merger as Exhibit A for the need for regulatory humility:

Finally, this deal reiterates the need for regulatory humility. Almost immediately after the Amazon-Whole Foods merger was closed, prices at the store dropped and competitors struck a flurry of deals. Investments continue and many in the grocery retail space are bracing for a wave of enhancement to take hold. Even some of the most fierce critics of deal will have to admit there is a lot of uncertainty. It is unclear what business model will make the most sense in the long run, how these technologies will ultimately become embedded into production processes, and how consumers will benefit. Combined, these features underscore the difficulty, but the necessity, in implementing dynamic insights into antitrust institutions.

Offering generous praise for this symposium (thanks, Will!) and echoing the points made by other participants regarding the dynamic and unknowable course of competition (Auer, Horwitz, Manne & Stout, Fruits), Rinehart concludes:

Retrospectives like this symposium offer a chance to understand what the discussion missed at the time and what is needed to better understand innovation and competition in markets. While it might be too soon to close the book on this case, the impact can already be felt in the positions others are taking in response. In the end, the deal probably won’t be remembered for extending Amazon’s dominance into another market because that is a phantom concern. Rather, it will probably be best remembered as the spark that drove traditional retail outlets to modernize their logistics and fulfillment efforts.  

For a complete rundown of the arguments both for and against, the full archive of symposium posts from our outstanding and diverse group of scholars, practitioners, and other experts is available at this link, and individual posts can be easily accessed by clicking on the authors’ names below.

We’d like to thank all of the participants for their excellent contributions!


Robert D. Atkinson is President of the Information Technology and Innovation Foundation

One year after the Amazon/Whole Foods merger, prices at Whole Foods stores have gone down. Amazon Prime members receive discounts on select products and if they use their Amazon credit card they receive 5 percent back. Consumers in many markets can now order groceries online and have them delivered for free. Amazon is expanding the number of stores nationwide. Not surprisingly, consumers appear to like the post-merger changes. Moreover, competitors are fighting back.  Kroger, for example, is increasing its stock of organic foods, starting free grocery delivery, and expanding private label goods to reduce prices.

In other words, one year out, the merger has done what its defenders said it would do: improve consumer welfare. But if today’s neo-Brandeisian opponents of all things big had gotten their way, the merger would not have happened.

Such opposition to larger retailers that clearly benefit consumers is nothing new. As Mike Lind and I write in Big is Beautiful: Debunking the Myth of Small Business, there has long been opposition to chain stores, including grocery stores. In the first half of the 20th century the rise of more efficient chain stores threatened the local monopolies of general stores owned by local elites, particularly in rural areas. A&P, the nation’s largest retail chain, was demonized by populists in the 1920s and 1930s in the same way that Wal-Mart and other “big box” stores were vilified by populists in the 1990s and 2000s, for putting out of business “Main Street” stores. The intellectual basis of that opposition came largely from Louis Brandeis who famously referred to the “curse of bigness,” by which he meant that the only way a firm could get big is through “sinning” (e.g., unfair competition).

Supporters of Brandeis succeeded in passing an array of laws designed to restrict larger, chain stores.  A “fair trade” law passed by California in 1931 was copied by nine other states, including New York and Illinois, by 1935. Around the same time, fifteen other states enacted resale price-fixing legislation that prevented the chains from offering discounts. In Jackson (1931), the Supreme Court upheld an anti–chain store law passed by the Indiana legislature that imposed higher taxes on chain stores, and later upheld a similar Georgia law. Between 1931 and 1940, twenty-two states adopted anti–chain store tax laws that survived court tests.  But not all did. The Court struck down a Florida law targeting chain stores in Liggett (1933), in a decision in which Brandeis wrote a passionate dissent. Former governor of Louisiana Huey Long, then a U.S. senator but still the dominant Louisiana politician, declared: “I would rather have thieves and gangsters than chain stores in Louisiana.”  Another southern populist, Congressman Wright Patman, became the national leader of the anti–chain store movement in the 1930s and led the passage of the Robinson-Patman act which limited price discrimination. In 1937, mom-and-pop operations won another victory with the Miller-Tydings Act, which amended the Sherman Antitrust Act to allow contracts to prescribe minimum prices for the resale of products sold in interstate commerce.

But this marked the peak of the influence of the anti–chain store movement. Consumer groups and labor unions joined retail chains to fight back and by the 1950s it became clear to most Americans that chain stores had clearly made their lives better.  But still, it took anti-trust law decades to catch up that reality. In 1966, the Supreme Court in United States v. Von’s Grocery Co. rejected a merger that would have produced a firm with just 7.5 percent of the relevant market because of “threatening trends toward concentration.”

However, as we write in Big is Beautiful, Brandeis is back, with today’s neo-Brandeisians reflexively opposing virtually all mergers involving large firms. For them, industry concentration has grown to crisis proportions and breaking up big companies should be the animating goal not just of antitrust policy but of U.S. economic policy generally. The key to understanding the neo-Brandeisian opposition to the Whole Foods/Amazon mergers is that it has nothing to do with consumer welfare, and everything to do with a large firm animus. Sabeel Rahman, a Roosevelt Institute scholar, concedes that big firms give us higher productivity, and hence lower prices, but he dismisses the value of that. He writes, “If consumer prices are our only concern, it is hard to see how Amazon, Comcast, and companies such as Uber need regulation.” And this gets to the key point regarding most of the opposition to the merger: it had nothing to do with concerns about monopolistic effects on economic efficiency or consumer prices.  It had everything to do with opposition to big firm for the sole reason that they are big.

However, knowing that most Americans value lower prices, the neo-Brandeisians deny, just as Justice Brandeis denied, the existence of economies of scale because they know that this reality, more than any other, undercuts their claim that limiting the kind of merger Amazon/Whole Foods represented would be good for consumers. Matt Stoller, a fellow at the Open Markets Institute, reflects that view when he tweets “I’m increasingly convinced the biggest con in business history is the notion of ‘economies of scale’.”  Yet the scholarly literature on the economies of scale is long and deep. As one study finds, “much of the increased competitive pressure on small retailers is due to the fact that growing chains face decreasing marginal cost.

In short, most of the opposition to Amazon/Whole Foods merger had little or nothing to do with economics and consumer welfare. It had everything to do with a competing vision for the kind of society we want to live in.  The neo-Brandesian opponents, who Lind and I term “progressive localists”, seek an alternative economy predominantly made up of small firms, supported by big government and protected from global competition. For this school, local production by small firms (or even better, worker-owned co-ops or government-owned enterprises) is the desired model, and there is no need for large corporations with extended production chains. Many seek a return to an idealized prior world of national and even regional autarky in which most products and services are produced by small organizations in close geographic proximity to where they are consumed. Inspired by the motto “Think global, act local,” they want to act, produce, and consume at the local level. Progressive localists are willing to sacrifice consumers’ interest in the lowest possible prices and broadest choice for their small producer vision, in part because they reject consumerism as a vice and a blight on the global environment. And the Amazon/Whole Foods merger took us in the other direction from that vision. It took us in the direction most Americans support: a world with higher productivity, lower prices and more consumer choice.


Will Rinehart is the Director of Technology and Innovation Policy at the American Action Forum

When Amazon and Whole Foods announced they were pursuing a $13.7 billion deal in June of last year, the grocer was struggling. Whole Foods might have been an early leader in organic food, but with that success came competition. Walmart began selling organics in 2014 while Costcost and Safeway revamped product lines for changing consumer preferences. By 2017, same-store sales at Whole Foods had declined for the previous two years and Barclays estimated that the company had lost about 3 percent of their foot traffic between 2015 and 2017. Simply put, Whole Foods wasn’t well managed enough to compete.   

Those against the merger aligned in opposition to Amazon’s expansion into the retail space. In the New York Times, Lina Khan argued that “Buying Whole Foods will enable Amazon to leverage and amplify the extraordinary power it enjoys in online markets and delivery, making an even greater share of commerce part of its fief.” Marshall Steinbaum, fellow and research director at the Roosevelt Institute, suggested that “Whole Food’s supply chain will enable Amazon to strengthen its online retail monopoly.” While Stacy Mitchell, Co-director at the Institute for Local Self-Reliance, charged Amazon with ambitions to “control the underlying infrastructure of the economy.”

Yet, it wasn’t that Amazon was trying to expand its “retail monopoly” reach or lay the groundwork to “control the underlying infrastructure of the economy.” Rather, the company was trying to “invigorate its nearly decadelong push into groceries” and saw Whole Foods as the best way to jump into the market. The lasting legacy of the merger won’t be in forceclosing competition in the grocery space but in opening a new front in it.

Consider how the entire market has shifted since the deal was finalized:

  • In September 2017, Albertsons Companies, which owns over 2,200 grocery stores, acquired the prepared meal startup Plated.
  • On October 3, 2017, Walmart bought Parcel, “a technology based, same-day and last-mile delivery company specializing in perishable and non-perishable delivery to customers in New York City.”
  • In December of 2017, Target acquired Shipt, a same-day delivery service platform, for $550 million in one of the companies largest deals.
  • In mid April of 2018, Walmart announced a deal with Postmates to extend its online delivery to more than 100 metro areas.
  • In May, Kroger announced that it had tapped the UK-based Ocado to pack online orders using the Ocado Smart Platform, which is staffed by robots.
  • Earlier this month, Walmart announced the launch of Alphabot, an automation system to help fill orders, that it has developed in collaboration with Alert Innovation.  
  • And just last Tuesday, the online seller of bulk items, Boxed, revealed that it had closed a funding round that totalled $111 million.

These high profiles deals have been coupled with high profile investments as well. InVia Robotics, a startup that provides fulfillment centers with automated robotics technology, raised $20 million in a series B round. French startup Exotec raised $17.7 million after debuting an automated robot called the Skypod to help with e-commerce warehouses. Bossa Nova Robotics closed $29 million to help expand it robots in grocery stores and large retailers. And Albertsons Companies created a fund with venture capital firm Greycroft to invest in the grocery sector.

Did the Amazon deal kick off this M&A activity? Josh Hix, chief executive of Plated, thinks so. As he told the New York Times, “The pace of follow-ups went from “This is interesting, and we’ll be in New York again in five months’ to ‘This is really interesting, and how’s tomorrow at 9 a.m. look for another call?’”

Indeed, what could not be predicted, but what seems to have happened, was a grocery tech M&A wave. The Amazon-Whole Foods deal brought with it an expectation of a coming technological shock to the industry. While we are still at the early stages of it, traditional retail outlets took the entry as a sign of Amazon’s willingness to invest in technology undergirding grocery stores. It might take a decade or so to be profitable, but retail logistics will soon be powered by robots.

Three broad lessons are worth heeding.

First, few were focusing on the trajectory of the market and the potential for consumers to win, but it could prove the most important echo of this deal. Grocery shopping remains a holdout to online retail and for good reason. Food is perishable, fragile, and heavy. Products require different temperatures and need varying levels of care when handled. The margins at thin but the fixed costs are high. Getting delivery prices low enough and at the right time to match the cost of an in-person grocery experience is just difficult. But if any company is able to crack that nut, then it will be a boon for customers.

Remember, the productivity growth experienced in the US from 1995 to 2000 was largely caused by retail improvements. In a highly cited report on the topic, McKinsey Global Institute singled out the retail sector’s logistical advancements for contributing a fourth of that growth. Of that sector, Walmart accounted for a sixth of productivity gains. Jason Furman even wrote in 2005 that, “There is little dispute that Wal-Mart’s price reductions have benefited the 120 million American workers employed outside of the retail sector,” calling the chain a “progressive success story.” If the Amazon-Whole Foods deal was able to kick off a new wave of innovation, it would be another progressive success story.         

Second, the negativity that surrounded the deal at its announcement made Whole Foods seem like an innocent player, but it is important to recall that they were hemorrhaging and were looking to exit. Throughout the 2010s, the company lost its market leading edge as others began to offer the same kinds of services and products. Still, the company was able to sell near the top of its value to Amazon because it was able to court so many suitors. Given all of these features, Whole Foods could have been using the exit as a mechanism to appropriate another firm’s rent.

Finally, this deal reiterates the need for regulatory humility. Almost immediately after the Amazon-Whole Foods merger was closed, prices at the store dropped and competitors struck a flurry of deals. Investments continue and many in the grocery retail space are bracing for a wave of enhancement to take hold. Even some of the most fierce critics of deal will have to admit there is a lot of uncertainty. It is unclear what business model will make the most sense in the long run, how these technologies will ultimately become embedded into production processes, and how consumers will benefit. Combined, these features underscore the difficulty, but the necessity, in implementing dynamic insights into antitrust institutions.

Retrospectives like this symposium offer a chance to understand what the discussion missed at the time and what is needed to better understand innovation and competition in markets. While it might be too soon to close the book on this case, the impact can already be felt in the positions others are taking in response. In the end, the deal probably won’t be remembered for extending Amazon’s dominance into another market because that is a phantom concern. Rather, it will probably be best remembered as the spark that drove traditional retail outlets to modernize their logistics and fulfillment efforts.  

[TOTM: The following is part of a blog series by TOTM guests and authors on the law, economics, and policy of the ongoing COVID-19 pandemic. The entire series of posts is available here.

This post is authored by Eric Fruits, (Chief Economist, International Center for Law & Economics).]

Earlier this week, merger talks between Uber and food delivery service Grubhub surfaced. House Antitrust Subcommittee Chairman David N. Cicilline quickly reacted to the news:

Americans are struggling to put food on the table, and locally owned businesses are doing everything possible to keep serving people in our communities, even under great duress. Uber is a notoriously predatory company that has long denied its drivers a living wage. Its attempt to acquire Grubhub—which has a history of exploiting local restaurants through deceptive tactics and extortionate fees—marks a new low in pandemic profiteering. We cannot allow these corporations to monopolize food delivery, especially amid a crisis that is rendering American families and local restaurants more dependent than ever on these very services. This deal underscores the urgency for a merger moratorium, which I and several of my colleagues have been urging our caucus to support.

Pandemic profiteering rolls nicely off the tongue, and we’re sure to see that phrase much more over the next year or so. 

Grubhub shares jumped 29% Tuesday, the day the merger talks came to light, shown in the figure below. The Wall Street Journal reports companies are considering a deal that would value Grubhub stock at around 1.9 Uber shares, or $60-65 dollars a share, based on Thursday’s price.

But is that “pandemic profiteering?”

After Amazon announced its intended acquisition of Whole Foods, the grocer’s stock price soared by 27%. Rep. Cicilline voiced some convoluted concerns about that merger, but said nothing about profiteering at the time. Different times, different messaging.

Rep. Cicilline and others have been calling for a merger moratorium during the pandemic and used the Uber/Grubhub announcement as Exhibit A in his indictment of merger activity.

A moratorium would make things much easier for regulators. No more fighting over relevant markets, no HHI calculations, no experts debating SSNIPs or GUPPIs, no worries over consumer welfare, no failing firm defenses. Just a clear, brightline “NO!”

Even before the pandemic, it was well known that the food delivery industry was due for a shakeout. NPR reports, even as the business is growing, none of the top food-delivery apps are turning a profit, with one analyst concluding consolidation was “inevitable.” Thus, even if a moratorium slowed or stopped the Uber/Grubhub merger, at some point a merger in the industry will happen and the U.S. antitrust authorities will have to evaluate it.

First, we have to ask, “What’s the relevant market?” The government has a history of defining relevant markets so narrowly that just about any merger can be challenged. For example, for the scuttled Whole Foods/Wild Oats merger, the FTC famously narrowed the market to “premium natural and organic supermarkets.” Surely, similar mental gymnastics will be used for any merger involving food delivery services.

While food delivery has grown in popularity over the past few years, delivery represents less than 10% of U.S. food service sales. While Rep. Cicilline may be correct that families and local restaurants are “more dependent than ever” on food delivery, delivery is only a small fraction of a large market. Even a monopoly of food delivery service would not confer market power on the restaurant and food service industry.

No reasonable person would claim an Uber/Grubhub merger would increase market power in the restaurant and food service industry. But, it might convey market power in the food delivery market. Much attention is paid to the “Big Four”–DoorDash, Grubhub, Uber Eats, and Postmates. But, these platform delivery services are part of the larger food service delivery market, of which platforms account for about half of the industry’s revenues. Pizza accounts for the largest share of restaurant-to-consumer delivery.

This raises the big question of what is the relevant market: Is it the entire food delivery sector, or just the platform-to-consumer sector? 

Based on the information in the figure below, defining the market narrowly would place an Uber/Grubhub merger squarely in the “presumed to be likely to enhance market power” category.

  • 2016 HHI: <3,175
  • 2018 HHI: <1,474
  • 2020 HHI: <2,249 pre-merger; <4,153 post-merger

Alternatively, defining the market to encompass all food delivery would cut the platforms’ shares roughly in half and the merger would be unlikely to harm competition, based on HHI. Choosing the relevant market is, well, relevant.

The Second Measure data suggests that concentration in the platform delivery sector decreased with the entry of Uber Eats, but subsequently increased with DoorDash’s rising share–which included the acquisition of Caviar from Square.

(NB: There seems to be a significant mismatch in the delivery revenue data. Statista reports platform delivery revenues increased by about 40% from 2018 to 2020, but Second Measure indicates revenues have more than doubled.) 

Geoffrey Manne, in an earlier post points out “while national concentration does appear to be increasing in some sectors of the economy, it’s not actually so clear that the same is true for local concentration — which is often the relevant antitrust market.” That may be the case here.

The figure below is a sample of platform delivery shares by city. I added data from an earlier study of 2017 shares. In all but two metro areas, Uber and Grubhub’s combined market share declined from 2017 to 2020. In Boston, the combined shares did not change and in Los Angeles, the combined shares increased by 1%.

(NB: There are some serious problems with this data, notably that it leaves out the restaurant-to-consumer sector and assumes the entire platform-to-consumer sector is comprised of only the “Big Four.”)

Platform-to-consumer delivery is a complex two-sided market in which the platforms link, and compete for, both restaurants and consumers. Platforms compete for restaurants, drivers, and consumers. Restaurants have a choice of using multiple platforms or entering into exclusive arrangements. Many drivers work for multiple platforms, and many consumers use multiple platforms. 

Fundamentally, the rise of platform-to-consumer is an evolution in vertical integration. Restaurants can choose to offer no delivery, use their own in-house delivery drivers, or use a third party delivery service. Every platform faces competition from in-house delivery, placing a limit on their ability to raise prices to restaurants and consumers.

The choice of delivery is not an either-or decision. For example, many pizza restaurants who have their own delivery drivers also use platform delivery service. Their own drivers may serve a limited geographic area, but the platforms allow the restaurant to expand its geographic reach, thereby increasing its sales. Even so, the platforms face competition from in-house delivery.

Mergers or other forms of shake out in the food delivery industry are inevitable. Mergers will raise important questions about relevant product and geographic markets as well as competition in two-sided markets. While there is a real risk of harm to restaurants, drivers, and consumers, there is also a real possibility of welfare enhancing efficiencies. These questions will never be addressed with an across-the-board merger moratorium.


Truth on the Market is pleased to announce its next blog symposium:

Is Amazon’s Appetite Bottomless?

The Whole Foods Merger After One Year

August 28, 2018

One year ago tomorrow the Amazon/Whole Foods merger closed, following its approval by the FTC. The merger was something of a flashpoint in the growing populist antitrust movement, raising some interesting questions — and a host of objections from a number of scholars, advocates, journalists, antitrust experts, and others who voiced a range of possible problematic outcomes.

Under settled antitrust law — evolved over the last century-plus — the merger between Amazon and Whole Foods was largely uncontroversial. But the size and scope of Amazon’s operation and ambition has given some pause. And despite the apparent inapplicability of antitrust law to the array of populist concerns about large tech companies, advocates nonetheless contend that antitrust should be altered to deal with new threats posed by companies like Amazon.  

For something of a primer on the antitrust debate surrounding Amazon, listen to ICLE’s Geoffrey Manne and Open Markets’ Lina Khan on Season 2 Episode 1 of Briefly, a podcast produced by the University of Chicago Law Review.  

Beginning tomorrow, August 28, Truth on the Market and the International Center for Law & Economics will host a blog symposium discussing the impact of the merger.

One year on, we asked antitrust scholars and other experts to consider:

  • What has been the significance of the Amazon/Whole Foods merger?
  • How has the merger affected various markets and the participants within them (e.g., grocery stores, food delivery services, online retailers, workers, grocery suppliers, etc.)?
  • What, if anything, does the merger and its aftermath tell us about current antitrust doctrine and our understanding of platform markets?
  • Has a year of experience borne out any of the objections to the merger?
  • Have the market changes since the merger undermined or reinforced the populist antitrust arguments regarding this or other conduct?

As in the past (see examples of previous TOTM blog symposia here), we’ve lined up an outstanding and diverse group of scholars to discuss these issues.


The symposium posts will be collected here. We hope you’ll join us!